The Spanish housing market post COVID-19 - SPANISH ...
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HOUSING MARKET
The Spanish housing market
post COVID-19
While COVID-19 did lead to an initial correction in Spain’s housing market, costs of home
purchases have continued to rise, albeit with some differences across regions and type
of housing. This has furthered a debate around housing affordability, including some
misguided calls for rent controls.
Santiago Carbó Valverde and Francisco Rodríguez Fernández
Abstract: Surprisingly, COVID-19’s effect change the nature of the housing market,
on the Spanish real estate market has been with rising demand for larger homes due
limited. The pandemic occurred during the to home working and declining demand for
“mature” housing cycle phase in terms of holiday homes thanks to mobility restrictions.
prices and transaction volumes. While GDP Importantly, significant disparity in house
contracted by 17.8% year-on-year in the prices exists across Spain’s regions. As
second quarter of 2020, the contractions in well, the pandemic had a greater adverse
construction and property services amounted impact on prices of new builds compared to
to 22.8% and 6.3%, respectively. Between existing homes. That said, COVID-19 had
June and September, both activities have a more uniformly adverse effect on rental
recovered, registering growth of 24.8% and prices. In general, the pandemic has shone
6.4%, respectively. COVID-19 did, however, a spotlight on housing affordability issues,
39“ The price correction during this crisis has been considerably less
intense than during the financial crisis; however, the disparity in price
trends from one region to another has not changed.
”
which Spain had been wrestling with since cycle. The pandemic occurred during the
before the onset of COVIID-19, with numerous “mature” phase in terms of prices and
initiatives introduced to protect tenants during transaction volumes (Alves and San Juan,
the crisis. While rental controls have been 2021). While GDP contracted by 17.8% year-
floated, this would only lead to reduced supply on-year in the second quarter of 2020, the
and, ultimately, price growth, further hurting contractions in construction and property
affordability. services amounted to 22.8% and 6.3%,
respectively. Between June and September,
Introduction both activities recovered, registering growth
The financial crisis left a number of economic of 24.8% and 6.4%, respectively. However,
imbalances with a considerable social impact. the new restrictions introduced in the wake
The property market spent two decades of the fresh outbreaks in the autumn and
working through the ensuing problems, in winter of 2020 once again took a toll, albeit
their various manifestations. Firstly, there a more moderate one than during the initial
was the imbalance created by the inordinate lockdown. In the first quarter of 2021, the
growth in construction and in prices, and, construction sector contracted by 4.2% and
subsequently, the loan non-performance property services, by 0.5%. The Bank of Spain
sustained when the property bubble burst. also noted that the pandemic has triggered
The social impact was similarly imbalanced: changes in the types of housing in demand,
evictions increased and, despite the price shaped by the circumstances created by the
correction, housing, whether for purchase or lockdown and home-working phenomenon.
rent, remained out of reach for large swaths of However, as shown in this paper, the price
the population. correction has been considerably less intense
than during the financial crisis. What has
The effect of COVID-19 on the property not changed, however, is the disparity in
market originates from the closure of price trends from one region to another. On
businesses, loss of jobs and restrictions on the credit side, growth has been, in general,
mobility. In theory, those are temporal issues. lukewarm, even though monetary policy
However, there are concerns that they could continues to foster lax lending conditions. As
lead to a legacy of more permanent damage. well, we are beginning to see some signs of
Although the response to this crisis in the tighter lending conditions.
form of support mechanisms has been swifter
than in the financial crisis, there remain many Situation and outlook
unanswered questions. Despite the progress Spain lacks a uniform and detailed body of
being made on the vaccination front, the statistics for house prices and other indicators.
economic and social effects of the pandemic [1] As a result, it is necessary to rely on a
remain significant and are being felt in the range of different public and private sources
real estate market. As a result, the Spanish to monitor unfolding trends. One key source
government has extended some of the for prices is the appraisal values published by
housing-related social relief measures until at the Ministry of Transport, Mobility and Urban
least August, as outlined in this paper. Agenda. Exhibit 1 illustrates the trend in those
values before and after the pandemic. Although
According to the Bank of Spain, the housing the variations are not very significant, the
market was particularly affected in 2020 exhibit shows how the negative impact was
because of its position in the housing business concentrated in the first and, above all, second
40 Funcas SEFO Vol. 10, No. 4_July 2021The Spanish housing market post COVID-19
Exhibit 1 Housing appraisal value per square metre in Spain during the
pandemic
1,660.0 1,652.8
1,650.0
1,638.3 1,640.4
1,640.0 1,636.3 1,637.4
1,630.0 1,625.4
1,622.3
1,619.6
1,620.0
1,610.1
1,610.0
1,600.0
1,590.0
1,580.0
1st 2nd 3rd 4th 1st 2nd 3rd 4th 1st
(quarter) (quarter) (quarter)
2019 2020 2021
Source: Ministry of Transport, Mobility and Urban Agenda and authors’ own elaboration.
quarters of 2020. The average appraisal value Another source is the house price index
of unsubsidised housing decreased from compiled by the National Statistics Office,
1,652.8 euros/m2 in the last quarter of 2019 to INE. The INE builds its indicator from registry
1,640.4 in the first quarter of 2020 and 1,610.1 data, making adjustments for the quality of
in the second quarter. Since the third quarter the properties (hedonic modelling). Although
of last year, appraisals have been recovering there tends to be discrepancy between actual
gradually. sales values and those reported for property
registry purposes, this index does provide
Nevertheless, significant price disparity a snapshot of the trend in prices over time.
persists from one region to another. During Exhibit 2 shows the year-on-year movement
the first quarter of 2021, when the appraisal in the index. In keeping with the thesis that
value averaged 1,625.4 euros per square the property market was reaching a level of
metre, the figure was 2,598.6 euros in Madrid, maturity or even exhibiting some softness
compared to just 833.5 euros in Extremadura. toward the end of 2019, the exhibit shows
Regional house price disparity is more that growth began to dip under 5% in the
pronounced than that observed in income final quarters of 2019, with that slowdown
and wages and therefore signals differences in continuing and accelerating since the
housing affordability that have been growing pandemic, easing to 0.9% in the first quarter
for some time. of 2021.
“ The average appraisal value of unsubsidised housing decreased
from 1,652.8 euros/m2 in the last quarter of 2019 to 1,640.4 in the
first quarter of 2020 and 1,610.1 in the second quarter.
”
41Exhibit 2 House price index in Spain, 2012 - 2021
YoY change
10.0
5.0
0.0
-5.0
-10.0
-15.0
-20.0
4Q12
1Q12
2Q12
3Q12
4Q12
1Q13
2Q13
3Q13
4Q13
1Q14
2Q14
3Q14
4Q14
1Q15
2Q15
3Q15
4Q15
1Q16
2Q16
3Q16
4Q16
1Q17
2Q17
3Q17
3Q17
1Q18
2Q18
3Q18
4Q18
1Q19
2Q19
3Q19
4Q19
1Q20
2Q20
3Q20
4Q20
1Q21
Source: INE and authors’ own elaboration.
To zoom in on where the price correction mortgages arranged. Although the correlation
has taken place, Exhibit 3 distinguishes is imperfect, it suggests that a lot of the
between new and second-hand housing. That transactions are not being carried out by
analysis shows it is the new housing market households in need of financing but rather
that sustained a price correction (of 0.6% investors (including institutional investors)
between January and April 2021), whereas that can afford to pay for their acquisitions
second-hand house prices continued to eke without relying on a mortgage.
out moderate growth (0.7%). This suggests a
degree of retrenchment with respect to new
housing developments in an environment The pandemic has probably had a bigger
of uncertainty for construction, with more impact on the rental market than on home
limited effects on existing houses. ownership as the restrictions on mobility
and the remote working phenomenon have
In order to assess what has happened in boosted rental vacancies and fuelled price
transaction volumes and mortgage lending, cuts. Although there are no official statistics,
Exhibit 4 compares the number of mortgages certain online portals such as Fotocasa
and home sales. The first point to note is that maintain that rents may have fallen by around
both transaction and mortgage volumes are 8% or 10% in Madrid and Barcelona during the
returning to pre-pandemic levels, although pandemic. That same platform estimates that
the recovery has further to run in 2021 and despite the appearance of some recovery early
2022. Secondly, the number of transactions on in the year, rental prices in Spain ended
is significantly higher than the number of May at 10.42 euros/m2, which is down 0.2%
“ The new housing market sustained a price correction of 0.6%
between January and April 2021, whereas second-hand house
prices continued to eke out moderate growth of 0.7%.
”
42 Funcas SEFO Vol. 10, No. 4_July 2021The Spanish housing market post COVID-19
Exhibit 3 House price index. New and second-hand housing
2,5 2,3
2,0
1,5
0,9
1,0 0,7 0,7
0,5
0,5
0,0
-0,5
-0,6
-1,0
General Index New houses Second-hand houses
Year-to-date Annual
Source: INE and authors’ own elaboration.
from April, marking the fourth consecutive According to the INE, in February 2021,
month of price correction. 294,698 such homes were listed on online
platforms, homes with a total of 1,495,578
The pandemic has also slowed the momentum places (an average of 5.1 per house). By
in holiday home rentals. This is likely due comparison with August 2020, the number of
to lockdowns and mobility restrictions. holiday home listings has fallen by 8.3%. The
Exhibit 4 Home purchase and mortgage transaction volumes in Spain
during the pandemic
EUR millions
60,000
50,000
40,000
30,000
20,000
10,000
0
2019M01
2019M02
2019M03
2019M04
2019M05
2019M06
2019M07
2019M08
2019M09
2019M10
2019M11
2019M12
2020M01
2020M02
2020M03
2020M04
2020M05
2020M06
2020M07
2020M08
2020M09
2020M10
2020M11
2020M12
2021M01
2021M02
2021M03
Mortgages House transactions
Source: INE and authors’ own elaboration.
43“ Online portals such as Fotocasa maintain that rents may have fallen by
around 8% or 10% in Madrid and Barcelona during the pandemic.
”
regions with the highest number of listings As for the market outlook, the growth
are Andalusia (61,574), Catalonia (54,646) in average unsubsidised house prices is
and Valencia (49,757). estimated at around 1% in 2021, with a slightly
stronger performance of 1% to 2% forecast
Conclusion: Housing policies and for 2022. The construction industry looks
forecasts set to receive a boost in the months to come
with up to 1 billion euros of funds from the
Although the figures suggest the pandemic has
Recovery and Resilience Facility earmarked
had a limited impact on the property market,
to residential building refurbishment and
with transactions slowing and price growth
energy conversion.
easing, the ad-hoc effects of lockdowns,
namely mobility restrictions and job losses,
have once again shone the spotlight on There is also talk of a number of different
affordability issues that Spain had already been initiatives to alleviate the housing affordability
wrestling with before the onset of COVID-19. problem, particularly in regions characterised
As a result, the Spanish government has by scarce supply and high prices. There are
opted to extend some of the relief measures initiatives afoot under the umbrella of the
put in place for more vulnerable groups of the State Housing Plan in collaboration with
population. In the rental market, tenants can the regional and local governments to make
ask for an extraordinary extension of their publicly developed housing available for
lease agreements for up to six months which rent. The Ministry of Transport, Mobility
landlords are obliged to accept on the same and Urban Agenda, the Ministry of Economic
terms as the existing agreement, unless they Affairs and Digital Transformation and
can substantiate they need the property for SAREB, Spain’s so-called bad bank, have
their own use. It has also extended the stay entered into an agreement to make 5,000
on evictions and foreclosures until August 9th new homes, extendible to 10,000 in the
and rolled over the measures for the deferral medium-term, available to the regional and
of rent for vulnerable households who rent local authorities. The Ministry will partially
from companies, public entities or large bear the costs of the transfer, refurbishment
landlords. The temporary financing aid in and work needed to guarantee the habitability
the form of loans guaranteed by the Official of the homes. Those homes will be leased at
Credit Institute, ICO, for low-income tenants discounted rents to people facing affordability
(interest- and commission-free loans with problems.
a maturity of between six and ten years) has
also been extended. The size of those loans There is less agreement about the advisability
is up to 100% of six months’ rent under lease of rent regulations. The evidence gleaned
agreements for primary residences, with from the leading academic studies and recent
a ceiling of 5,400 euros, or 900 euros per experiences in other European countries is
month. that rent controls and regulations tend to lead
“ Growth in average unsubsidised house prices is estimated at around
1% in 2021, with a slightly stronger performance of 1% to 2% forecast
for 2022.
”
44 Funcas SEFO Vol. 10, No. 4_July 2021The Spanish housing market post COVID-19
to counter-productive decreases in supply and
increases in prices.
Notes
[1] For more information about the variety of
statistics and their limitations, refer to Carbó
Valverde and Rodríguez Fernández (2015).
References
Alves, P. and San Juan, L. (2021). The impact
of the Covid-19 health crisis on the housing
market in Spain. Economic Bulletin, 2/2021.
Carbó Valverde, S. and Rodríguez Fernández,
F. (2015). Spain’s property market post
correction: Recovery or stabilisation. SEFO,
4(5). Retrievable from: https://www.funcas.
es/wp-content/uploads/Migracion/Articulos/
FUNCAS_SEFO/021art03.pdf
Santiago Carbó Valverde and Francisco
Rodríguez Fernández. University of
Granada and Funcas
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